An analysis found that if international oil prices rise 50%, the domestic construction production expense growth rate exceeds 1%.
According to the report "Analysis of the impact of crude oil price increases on construction production expense" published by the Korea Research Institute for Construction Policy on the 15th, when oil prices rise 50%, domestic construction production expense increases 1.06%.
This figure was estimated by applying the Bank of Korea's "price spillover effect analysis model" from the 2023 input-output table (extended table for 2020). Considering the characteristics of crude oil as a 100% imported item, the model for the inflation spillover effect of import price changes was applied.
The increase in building production expense due to a 50% rise in international oil prices was analyzed to be below 1%: 0.90% for residential buildings, 0.80% for nonresidential buildings, and 0.93% for building repair.
By contrast, under the same standard, production expense in civil engineering showed increases above 2%—2.93% for road facilities, 2.76% for urban civil engineering, 2.19% for river and erosion control, 2.03% for port facilities, and 2.03% for agriculture, forestry, and fisheries civil engineering. In short, civil works take a direct hit from rising oil prices compared with building construction.
In addition, the institute analyzed which of 380 construction input factors are most affected by a 10% rise in oil prices and found that the impact from diesel accounted for 35.2% of the total spillover effect. It was followed by ready-mixed concrete (8.5%), asphalt concrete and asphalt products (8.4%), and road freight transport services (4.2%), which drove the rise in production expense.
The institute said, "The reason diesel has the highest price spillover effect is that diesel is not only directly used as the key fuel for heavy equipment at construction sites, but is also essentially injected throughout the production processes of key construction materials such as ready-mixed concrete and asphalt concrete."
It added, "More than 90% of construction machinery such as excavators, cranes, forklifts, and bulldozers—the core power sources at construction sites—use diesel as fuel."
As of the 13th (local time), marking two weeks since the Middle East war began with the United States and Israel's sudden airstrikes on Iran, Brent crude, the benchmark for international crude prices, had risen 42% since the outbreak.
However, compared with the outbreak of the Russia-Ukraine war in 2022, the direct price shock to the dwellings and construction markets from this situation is expected to be relatively smaller.
The cumulative number of dwelling housing starts last year totaled 273,000 units, down about 110,000 from 2022 (386,000 units), when the Russia-Ukraine war broke out, and construction investment also fell 9.5% last year.
Park Cheol-han, a research fellow at the institute, said, "Unlike in the past when supply-demand imbalances were severe due to a construction downturn, construction costs will rise only within a limited range in the short term," but added, "If the spike in oil prices persists, the spillover could be greater than expected and may delay a construction recovery."
Park went on to say, "To prepare for a prolonged spike in oil prices, it is necessary to manage supply-demand and unit prices centered on diesel and asphalt concrete, which are the core materials with strong spillover," adding, "Support measures for the construction equipment and freight transport industries should be linked, and preemptive reviews are needed for guidelines on price-escalation contract adjustments (ESC) focused on civil works sites that are hit hard."